Falling rupee: IT companies worried over currency volatility

NEW DELHI: Exporters may cheer rupee falling below the psychological 55-level, but currency volatility has left software services firms worried as fluctuation hampers planning process for the $100 billion Indian IT-BPO industry.

Usually, a depreciating rupee helps IT companies improve their margins as they earn revenues in dollars. However, with most companies hedging their earnings well in advance, the current fluctuation may not make huge difference.

The rupee today closed at all-time low of 55.03 against the dollar amid robust demand for the US currency from banks and importers. The Indian currency has fallen about seven per cent against the dollar since April.

Experts suggest that one per cent depreciation in the rupee has a positive impact of about 25-40 basis points on the margins of IT companies.

"The IT industry as a whole has benefited but volatility is not good for the corporate sector. The rupee has been extremely volatile recently. Now, IT companies must plan on how to effectively manage this volatility," KPMG India Partner ( Financial Risk Management) Rohit Bammi told PTI.

The rupee has seen wild swings in recent months, mainly on account of the European economic turmoil and FII outflows. "It was at 54-level in mid-December last year, then it appreciated to 48-50 level by January-end and now it has hit the 55-level," he added.

Software industry body Nasscom has also expressed concern on the issue. "More than depreciation, the volatility of currency movement is a concern that needs to be tackled since it hinders the planning process for the Indian IT-BPO industry," Nasscom said. A 10 per cent-plus movement of currency in a few weeks is definitely a concern for the companies, it added.

Nasscom also said hedging may not be a complete solution for dealing with the currency woes. "While there is a marginal impact on the bottom-line when the rupee depreciates, it is reversed when the currency movement is the other way," it said.

Moreover, hedging as well as contracts that increasingly take into account the foreign exchange rates make an assumption of a direct correlation between currency movements and margins a bit misleading, it added.